Should Your Bank Take a Chance on Running a Drawing?

Should Your Bank Take a Chance on Running a Drawing?

Article excerpt

A prize drawing seems like an attractive way to entice people to participate in some activity. However well intentioned, it can be a problem. Why? Federally regulated banks are prohibited from participating in lotteries--and even "drawings" may really be lotteries in the eyes of the law.

ABA's Center for Regulatory Compliance receives numerous emails and calls from members asking about the permissibility of holding a drawing or a lottery.

Under federal law, banks may not "deal in lottery tickets." They also may not "deal in bets used as a means or substitute for participation in a lottery" nor "announce, advertise, or publicize the existence of any lottery."

Federal law defines a lottery, but the definition is fairly broad, and understanding what is prohibited can be confusing. But in very general terms, in order for a contest to be a lottery, a participant must be required to give up something of value (consideration) in order to participate. If a person can participate for free, then the contest is a drawing and not a lottery, and is generally permissible. …